Oil Surges to $104 as Iran and Houthis Escalate Tanker Attacks

Oil prices surged on Thursday to their highest levels in weeks, as a coordinated wave of escalation by Iran and its Houthi allies in Yemen sent fear through the world's most important energy corridor and forced investors to reprice the risk of a wider Middle East confrontation.

Brent crude, the international benchmark, settled at $104.28 a barrel, up about 4 percent, after touching $105.43 during the session, its highest price since mid-September. The American benchmark, West Texas Intermediate, settled at $91.49, up 3.6 percent, after reaching $92.79, its strongest since late September. At the peak of the rally, prices were up as much as 5 percent on the day.

Four forces drove the spike at once: Iranian attacks on tankers in the Strait of Hormuz, Houthi missile strikes on Saudi Arabia's airports and refineries, a report that the White House is weighing military options against Iran, and a hurricane that shut a quarter of the Gulf of Mexico's offshore oil output.

Why it matters

The Strait of Hormuz is the narrow shipping lane through which the bulk of the Middle East's oil reaches the world. When tanker traffic through it falls, the global market tightens everywhere, and drivers feel it within weeks. The United States' national average gasoline price is already holding above $4 a gallon, and diesel has climbed above $6, raising costs for trucking companies, heating oil suppliers, and ultimately the price of food on store shelves.

Financial markets felt the jolt too. The 10-year Treasury yield climbed to 5.294 percent, near a 24-year high, before easing to 5.267 percent. Stocks slid: the Dow Jones Industrial Average fell 96 points, the S and P 500 lost 0.2 percent, and the Nasdaq Composite dropped 0.5 percent. Energy prices are feeding directly into the economy's most politically sensitive issue, the cost of living, less than a month before the midterm elections on November 3.

The context

Iran has spent the past week intensifying its attacks on commercial shipping in and around the Strait of Hormuz. Late on Wednesday, an oil and chemical tanker near Qatar was struck by several projectiles, according to the maritime intelligence firm Vanguard and the British navy's UK Maritime Trade Operations agency, and casualties were reported. No one claimed responsibility, but regional officials pointed to Iran. Nine oil tankers have been attacked in and around the strait over the past week, and shipping data provider Kpler put flows through the strait at about 9.5 million barrels a day in the week ended Tuesday, roughly 30 percent below normal pre-war levels.

At the same time, Yemen's Houthi militants fired missiles at airports in Riyadh and Abha, Saudi Arabia, the third straight day of attacks on the Saudi capital. Aircraft were damaged at Riyadh's international airport, and Saudi Arabia said the attacks killed three people, including a pilot for the national carrier Saudia, and injured others; Saudi state media put the number of injured at 36. The Houthis also claimed to have targeted a major Saudi refinery.

The third spark came from Washington. The Atlantic, citing unnamed sources, reported that the White House had asked the Pentagon to develop strike options against Iranian targets that could be exercised before the November 3 midterms. And the fourth was nature: Hurricane Isaias forced the shutdown of about 500,000 barrels a day of Gulf of Mexico production, about 25 percent of the region's offshore output, with Shell and Chevron pulling workers from platforms.

Key numbers

• $104.28: Brent crude settlement on Thursday, up about 4 percent; intraday high of $105.43, the best since mid-September
• $91.49: West Texas Intermediate settlement, up 3.6 percent; intraday high of $92.79, the best since late September
• 9: oil tankers attacked in and around the Strait of Hormuz in the past week
• 9.5 million: barrels a day flowing through Hormuz last week, about 30 percent below normal
• 500,000: barrels a day of Gulf of Mexico output shut by Hurricane Isaias, about a quarter of the region's offshore production
• Above $4 a gallon: the stubbornly high national average US gasoline price; diesel is above $6

What happens next

The rally cooled late Thursday after President Trump posted on Truth Social that the United States "will not be attacking Iran at any time prior to the Midterm Elections" on November 3. Oil retreated from its session highs on the news.

As The Wall Street Journal framed it, a week ago Iran appeared boxed in, its ports blockaded, its leverage over Hormuz slipping. Tehran and its Houthi allies are now trying to regain the upper hand, raising oil prices and pressuring Trump before the midterms while stopping short of a full-scale confrontation. US officials believe that delaying a decision on resumed strikes pressures Tehran toward concessions, including on its nuclear program.

What to watch: whether tanker traffic through Hormuz keeps shrinking, whether the Houthi strikes on Saudi Arabia continue, what Trump signals about military action after November 3, and whether Isaias does more damage to Gulf production.